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Tesla Is Optimistic About the Model 3

Tesla Inc (Nasdaq: TSLA) management and Wall Street bears continue to butt heads about Tesla’s ability to hit its production and financial targets. This week, Bank of America analyst and Tesla bear John Murphy hosted an investor meeting with Tesla management and remains convinced that things aren’t as rosy at Tesla as the market seems to think.

Tesla recently hit its 5,000-per-week Model 3 production goal in the last week of June after six months of production delays. However, the stock is down 7.4 percent so far in July after analysts began to question the sustainability of Model 3 production following reports that Tesla employees were working mandatory weekend shifts and up to 12-hour workdays to hit the 5,000-vehicle target.

Tesla said on Tuesday that Model 3 production is sustainable, and the company is sticking to its new Model 3 production targets of 6,000 vehicles per week by the end of the third quarter and 7,000 vehicles per week by the end of the year.

Murphy says Tesla’s past suggests its targets are too optimistic.

“Although TSLA is confident in the sustainability of its production rate, based on its past challenges in ramping up production, we remain somewhat skeptical and believe it will take some time before the Model 3 production reaches material scale,” Murphy says.

In the near term, the largest risk for TSLA stock investors is the company’s financial situation. Tesla once again on Tuesday insisted that it will not need to raise capital in 2018. CEO Elon Musk has said Tesla will be profitable and cash-flow positive by the third quarter.

Despite his negative view on Model 3 production, Murphy says Tesla may have recently found a creative way to improve its financial standing.

“We would note that customers are now required to pay an additional $2,500 to configure the Model 3, which, based on the current reservation count of 420,000, could equate to a $1 billion cash infusion and may buy a few quarters before TSLA needs to return to the capital markets,” Murphy says.

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